The Fiscal Channel: Recovery After China's Property Bust

Chinese local governments raised 8.71 trillion yuan from selling land use rights in 2021 and 4.15 trillion in 2025, a fall of 52 percent. This paper argues that land revenue is the residual claim on house prices. A developer can pay for land only what is left of the house price after construction cost and its margin, so a small fall in prices takes a large share out of the residual. Two pieces of evidence support this. Four property revenue lines met the same shock and ordered themselves by exposure to the residual: holding taxes rose 44 percent, deed tax and land appreciation tax fell 40 and 41 percent, and land revenue fell 52 percent. Across 30 provinces, land revenue moved about three times as much as house prices between 2021 and 2024, an elasticity of 3.16 with a 95 percent interval of 1.67 to 4.66. Prices explain which provinces fell further. But a province whose prices did not move still lost about 30 percent of its land revenue, and that common part is where the failure of private developers sits. Local governments are not short of land, so the revenue is contingent on the housing market. It returns if house prices recover, and stays down if they do not.